PERSPECTIVE3-5 min to read

Semiconductors - key to smart, green cities of the future

COVID-19 disruption has underlined our reliance on access to digital networks in order to be able to work, shop and continue schooling. Components within these digital processes will remain in high demand.



Lucie Hughes
Portfolio Manager

We have entered the 2020s with 30 billion devices connected to the internet, a figure estimated to rise to 500 billion by 2030, driven by emerging themes such as 5G, the “internet of things” and autonomous vehicles.

We are expected to be interacting with connected devices once every 18 seconds by 2025, as opposed to today's 6.5 minutes, according to the IDC (International Data Corporation). Earlier this year, Microsoft CEO Satya Nadella said “tech spending as a percentage of GDP is projected to double over the next decade”.

Will coronavirus derail that growth? Some are already predicting it will have the opposite effect, and bring it forward.

Clearly, a “techceleration” has been set in motion and is leading to increased demand for semiconductors. Semiconductors are essential technology enablers that underpin the electronics we use in our everyday lives. In the past few years, growth of the global semiconductor industry has been driven predominantly by demand from smartphones and cloud computing.

Whilst 2019 proved to be a trickier year, with memory chip prices falling due to oversupply and a lack of demand for smartphones, a new phase of demand for semiconductor chips is expected to take place.

To the East

Last year, we saw the US-China trade war begin to develop into a tech war with both countries competing for national superiority in next generation technologies, going well beyond the initial manufacturing and trade issues.

The Huawei incident, where the US barred the firm from purchasing its key technology components from any US company, solidified China’s determination to hasten the process of reducing their reliance on US suppliers.

Will coronavirus derail that growth? Some are already predicting it will have the opposite effect, and bring it forward

As of 2018, China imported over $300 billion of semiconductor products while only producing $24bn domestically. The 85% deficit poses significant risks to China and its place in the tech race. Consequently, the nation has adopted a “China First” strategy with ambitious targets such as producing 40% of all semiconductors for domestic use by 2020 and 70% by 2025.

China is particularly well positioned to take advantage of the key megatrends. At the moment, just over half the population is connected to the internet in China, yet that is almost triple the number of internet users in the US – providing huge growth opportunities. China is expected to maintain its position as the world’s largest semiconductor consumption market, which accounted for 41% of the global total in 2018, estimated to increase to 57% by 2024.

While China invests in its own domestic semiconductor industry to catch up with existing technology, this has benefited companies in East Asia where some of the world’s most important semiconductor players are located such as Samsung in South Korea and Taiwan Semiconductor Manufacturing Company (TSMC) in Taiwan. Since the US barred Huawei from buying US supplies last year, TSMC has emerged as the main guarantor for Chinese firms to have continued access to high-end semiconductors that Chinese manufacturers cannot yet produce themselves.

5G enabling the “internet of things” and Smart Factories

We are beginning to see the rollout of the 5G network, and this is a strong tailwind for semiconductor companies. Semiconductors are involved in every level of 5G from the network infrastructure (antennae, base stations, switches) to mobile phones and other connected devices. 5G networks will transform connectivity, offering much higher data speeds, bandwidth and reduced latency compared to current 4G networks.

With download speeds up to 100x faster than at present, 5G will provide super-fast wireless connectivity that will form the nervous system of “always connected” devices.

Both 5G and the internet of things will lead to our cities becoming “smart”, with artificial intelligence technologies used to reduce traffic congestion, improve public safety and protect the environment. This is already happening in some cities. For example, Cascais in Portugal (see below), uses sensor-fitted rubbish bins to notify local authorities as the bins approach capacity, allowing rubbish trucks to be used more efficiently. This has reduced the number of trucks required by 20%.


On a more personal basis, the internet of things will be able to connect any of your devices with the internet and/or to each other. This could lead to a future where your car accesses your calendar on your phone, decides the best route to take to your destination and – if traffic is heavy – send a message to the person you are meeting to notify them you will be late.

While the widespread adoption of the internet of things will take time, the timeline is advancing due to improvements in the underlying technologies.

Manufacturing companies are under pressure due to shorter business and product life cycles, margins are being squeezed as components become increasingly complex to produce, and workforces are becoming more costly. 5G will be a huge catalyst for widespread robotic factories that are currently not feasible due to 4G being too slow and WiFi not being reliable enough.

New 5G networks offer manufacturers the chance to build smart factories and take advantage of technologies such as automation and artificial intelligence. Smart robots will be able to adapt to their environment and to changing circumstances through the use of sensors. Production lines, robots and sensors will all be wirelessly connected in the cloud to work together by sharing and aggregating data for large scale analysis. Cloud robotics will enable advancements beyond automating parts of assembly lines by increasing levels of automation, regulating processes, and preventing malfunction and faults. This will improve both efficiency and profitability of these companies.

Naturally, manufacturing is one of the industries taking the lead but other sectors like health care, transportation and consumer services are also driving robotics.

Autonomous and Electric Vehicles

An already rapidly-growing part of  the semiconductor industry is the automotive segment. From 2001 to 2015, revenue grew from $10bn to $30bn, and is set to grow up to $47bn in 2020, or an annual growth rate of 9.2%. This has been driven by rising electronic content in cars and the penetration of electronic features from premium models to lower-priced, high-volume models. Advances hold significant promise to reduce traffic on the roads, result in fewer accidents, and improve operational efficiency.

Most of the automotive innovations that take place today arise from electronics rather than mechanics, and therefore these trends have one common enabler, which is advances in automotive software and electronic components. This provides opportunities for semiconductor companies to provide solutions that give vehicles the ability to sense, analyse, interpret, decide and communicate with other automobiles, infrastructure, people and organisations.

Component cost: putting a price on electronics and semi-conductors per car


Source: IHS, Deloitte analysis

The cost of semiconductor components has grown considerably from $312 per car in 2013 to around $400 today. This figure is expected to reach close to $600 per car by 2030, and clearly automotive semiconductor vendors are benefiting from a surge in demand for various semiconductor devices in cars.

There is also a sense of urgency within the sector. The automotive industry is expected to change more in the next decade than it has in the last century – with mounting pressure to meet ambitious emission targets.

For example, the EU has agreed targets that require vehicle emissions to halve by 2030. This is a difficult target, forcing companies to change quickly.

To halve emissions by 2030 implies engine efficiency improvements of 5% each year, which is well above the 3% per year seen over the last decade. However, with stringent government regulations to lower emissions, cars must become more fuel-efficient and this is driving up semiconductor demand for traditional vehicles as well as electric and hybrid vehicles.

Issued in the Channel Islands by Cazenove Capital which is part of the Schroders Group and is a trading name of Schroders (C.I.) Limited, licensed and regulated by the Guernsey Financial Services Commission for banking and investment business; and regulated by the Jersey Financial Services Commission. Nothing in this document should be deemed to constitute the provision of financial, investment or other professional advice in any way. Past performance is not a guide to future performance. The value of an investment and the income from it may go down as well as up and investors may not get back the amount originally invested. This document may include forward-looking statements that are based upon our current opinions, expectations and projections. We undertake no obligation to update or revise any forward-looking statements. Actual results could differ materially from those anticipated in the forward-looking statements. All data contained within this document is sourced from Cazenove Capital unless otherwise stated.



Lucie Hughes
Portfolio Manager


Cazenove Capital is a trading name of Schroders (C.I.) Ltd which is licensed under the Banking Supervision (Bailiwick of Guernsey) Law 2020 and the Protection of Investors (Bailiwick of Guernsey) Law 2020, as amended in the conduct of banking and investment business. Registered address at Regency Court, Glategny Esplanade, St. Peter Port, Guernsey GY1 3UF, (No.24546) . Schroders (C.I.) Limited, Jersey Branch is regulated by the Jersey Financial Services Commission in the conduct of investment business. Registered address at IFC1, Esplanade, St Helier, Jersey, JE2 3BX, (No.31076).

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